Do I lose money using TA?
Unfortunately, sometimes I do. And usually the reason I do is because I don't listen to what TA is telling me. I am human too, and unfortunately, that is a liability when investing in stocks (in my opinion).
But let me back up here and tell you how I use, or try to use TA.
It all starts with what I want.
Do I want a quick day trade?
How about a short term, 3-5 day momentum play?
Am I looking for a longer term move?
These are the questions I ask myself, and everyone should ask themselves, because if you don't know what you want, you can't develop a plan to achieve it. And without a plan, you are lost.
What I want will determine lots of things. How long I am willing to wait? How much of a drawdown I can stand. What the size of my position will be, etc.......
Once I know what I am looking for, the next step is money management.
I take no more than 10% of my total stake per each position. And then, the most I will lose on that position is 10%. So total, if my choice wrong, and the stock moves against me, the most I can lose of my total equity is 1%. That means I would have to lose 100 straight times to be out of the "game."
You see a lot of investing is not necessarily how much you make, but how much you DON'T lose, so that you can correct your mistakes, and try again.
Also, knowing how much I can lose, tells me if I can take a position or not. If I am looking at a position, and the logical stops (from a TA standpoint) are at a point that would cause me to violate my money management concept, then I know I have to pass on that trade.
You see, with TA, BEFORE I ever take a position, I already know my exit point. Meaning I have a real price point, that if hit, tells me that my pick was wrong, and the stock is not going the way I want it, in the time frame I want it.
So now, with TA, I have objective criteria with which to buy a stock. Criteria that is not disputable. And that puts me ONLY in stocks that have an exit point that will let me stay under my money management criteria.
Do you know what an advantage that now gives me?
You see, now I buy the stock, and I am on auto-pilot. Now I don't care what the market does, what an analyst says, what news comes out, etc, etc, etc.......
Because none of it matters to me. This allows me not to panic or get emotional about a stock. If my stop gets hit, I am out. If moves my way, I have a separate criteria for taking a profit, based on what I want out of the stock, and what my TA says.
Let's take the example of Oakley. If I had been in the stock I would have had stops in place so that on that first big hit from 24.00 to the low twenties, I would have been out.
THAT'S IT!!! JUST OUT!!!
I wouldn't matter that they just had record earnings, that Jordan was an endorser, that the posts on the Internet said it was a good company, etc. TA would not let me rationalize holding on to the stock. And I would have avoided the pain of the drop down to 8.50.
Now I can hear those "fundamentalists" out there saying, "Well what if OO went back up to 30.00."
And my answer to that is, "So what if it did. What if it continued to 2.00." The point is, hindsight is 20/20. Let me give you an example. If you go to Vegas, and put your life savings on #20, that is a very bad idea. If you hit on #20, IT STILL WAS A BAD IDEA, you just got lucky. And if that is they style in which you gamble (i.e. pick stocks) you WILL eventually lose it all.
OO did go to 8.50, and that is a terrible loss if you held. Well you can say, "But I'm in for the long term, I'll just hold til it turns." There are a couple of problems with that.
1. OO is not a "buy and hold"stock, if you want to do that, buy IBM.
2. There are no guarantees that "buy and hold" will work. There are times in the last 20 years where if you bought IBM, you would have had to wait 5 years to break even.
3. If you can't answer to yourself why you bought a stock, when will you know when to sell it. And don't tell me, "Well, it's a good company." What the hell does that mean, and what does it have to do with stock price. Wal-Mart is a great company, but look at their stock movement in the last five years, not much excitement (or profit there).
4. Why on earth would you want to tie up capital on a stock that long.
If you buy and hold, put some money every month into a 401K, or IRA, or Mutual Fund, and plan to do it for 10 to 20 years minimum.
I don't expect to pick 100% winners using TA, I would be happy with 50%, and usually 30%-50% is enough to make some money. Why? Because you are cutting your losers very fast, and your losses are small and controlled. This way, those 30%-50% that do win, and you let run, more than make up for your small losses. Winning in stocks is done by small steps, doing your homework, and patience. Not trying to hit a home run every time. Forget Buffet and Lynch, and try TA, it really does work.
NOW.....having said that, the reason I sometimes lose on TA is because I do what everyone else does, I second guess myself (the TA), I rationalize, I get influenced by news, and that is usually when I lose. This is because I am human and have emotions. In fact, my biggest problem is not learning TA, but learning how to follow it. How to trust it. How to turn the news off. How to ignore the noise. Its tough, it takes a lot of courage to sell a stock that an analyst just said was going to the moon, but you have to do it. You have to realize that there is no guarantee that that analyst know more that you do. And there is no guarantee as to how buyers/sellers will react to that news.
Think about it. Oakley comes out with record earnings, how is that reacted to. Does everyone buy because it is great news, and things are going good for Oakley? Or do they sell because the company has peaked, and all the good news is out. Or is there some Great/Terrible secret regarding Sunglass but that is coming out that nobody (except Jannard) knows about.
TA doesn't deal with "Why" something is the way it is, it just deals with the fact that it "IS" the way it is.
I doesn't marry a stock, it uses it, that's right uses it to get what it wants. And then is throws it away when it is done. It doesn't put up with excuses and crap. It slaps the stock in the face and says, "screw you, I'm out of here." Pretty macho sounding right. <G>.
Yeah I lose money sometimes, but it is getting less and less, and I now know why I lose money, which is very important. It's like two farmers in the fields. Sometimes they have a good crop, and sometimes they don't. When they do, its because the Gods are happy, and when they don't, it's because the Gods are mad. It goes on for years, until one of the farmers question the theory, and starts to examine things. He then notices that when there is a bad harvest, there is a large amount of ants in the fields. He starts to think, "maybe the ants, and not the Gods have something to do with my harvest." The other farmer yells at him and ridicules him, but slowly, the first farmer's harvest becomes more and more steady, as he deals with the ant problem. Soon his crop is strong, and the other farmer is still blaming the Gods for his bad harvest, because he refuses to re-examine his unsuccessful belief. And he refuses to accept that he is responsible for his success and failure not some Gods (analysts, insiders, bad press, economic indicators, etc). Because if he does accept that, he ALSO has to accept the responsibility to change things. And most people aren't up to that challenge.
Boy my fingers hurt! Oakley, 14 1/16. Not the great move I want, but not bad! Lot of resistance above.
BCL |
